The Moves That Led To ESPN’s Cuts

As the names of the roughly 300 laid-off ESPN employees leaked though the sports industry at the end of last week, many longtime executives reacted with a sense of disbelief.

These weren’t household names like Bill Simmons or Keith Olbermann, who left earlier in the year. In fact, none of ESPN’s on-air talent were part of the cuts. Rather, they were friends and colleagues. There were the producers who spent their entire career on the ESPN campus and executives who are raising families in Bristol, Conn. — hardly a hotbed for sports media.

The cuts sent shock waves through the sports and media industries, incredulous that a company seemingly rife with cash would have to lay off so many good people. This was not a case of cutting fat, ESPN insiders say. Many capable executives and talented producers were shown the door last week.

The moves continued a troubled period for the sports media giant that started when Disney CEO Bob Iger told CNBC that “the business model may face some challenges over the next few years.” His remarks led to a sell-off of media stocks during the summer.

SportsBusiness Journal talked to more than a dozen senior executives — both inside and outside of Bristol — about how ESPN got to this point. All seemed surprised at the severity of last week’s cuts. None wanted to speak on the record because of the sensitivities associated with the layoffs.

All the contacts pointed to a combination of skyrocketing rights fees and deep distribution cuts that put ESPN in the position where it had to shed about 4 percent of the company’s workforce.

“The cost of goods is going up and sales are going down,” one longtime industry executive observed. “That’s not a good trend.”

ESPN remains one of the most powerful entities in sports. It’s still in 92 million homes and makes a whopping $6.50 per subscriber per month. And it has long-term deals in place with most of the country’s biggest sports leagues. ESPN President John Skipper spent Wednesday afternoon walking ESPN’s campus, projecting an air of confidence during one of the company’s darkest days.

“These changes are part of a broad strategy to ensure we’re in position to make the most of new opportunities to build the future of ESPN,” Skipper wrote in a memo that was distributed on the company’s website. “I realize this process will be difficult — for everyone — but we believe the steps we are taking will ultimately create important competitive advantages for our business over the long term.”

But last week’s layoffs offered the clearest sign yet that all is not well for the Worldwide Leader in Sports.